 "Finance Minister Nirmala Sitharaman")
Amid a flurry of downgrades to India’s growth forecast by international agencies, Union Finance Minister Nirmala Sitharaman has told the International Monetary and Financial Committee (IMFC) that the country’s economy is expected to grow by 6.5 per cent in 2025-26, supported by strong domestic consumption and investment demand despite global uncertainties.
In a written statement submitted to the advisory body of the Washington-based International Monetary Fund (IMF) last week during the Spring Meeting— before her premature departure for India following the Pahalgam terrorist attack —Sitharaman said India’s inflation is likely to remain stable at around 4 per cent in FY26, aided by falling crude oil prices.
“Looking ahead, India’s growth story is expected to remain largely intact notwithstanding the turbulent times as its fundamental drivers — consumption and investment demand — are quintessentially domestic. Even on the external front, services exports are expected to remain resilient. Further, the fall in crude oil prices augurs well for the inflation outlook. Accordingly, the real GDP growth is expected at 6.5 per cent for 2025-26 and inflation at 4 per cent,” she said.
The latest Economic Survey had estimated India’s GDP growth in the range of 6.3-6.8 per cent for FY26. However, the IMF and the World Bank last week pared down their FY26 growth forecasts for India by 30 basis points to 6.2 per cent, and by 40 basis points to 6.3 per cent, respectively, citing global uncertainty and economic weakness.
Sitharaman said tax relief measures announced in the FY26 Union Budget are set to boost private consumption and, consequently, private investment.
“Already, investment activities have gained traction and are expected to improve further on the back of sustained higher capacity utilisation, the government’s continued thrust on infrastructure spending, and healthy balance sheets of banks and corporates, along with the easing of financial conditions,” she further said.
The finance minister said the prospects for growth in the agriculture sector in FY26 remain bright, supported by healthy reservoir levels and robust crop production.
She said net services and remittance receipts are expected to remain in large surplus, partly offsetting the trade deficit in the current financial year.
“The CAD (current account deficit) for 2024-25 and 2025-26 is expected to remain well within sustainable levels. Gross foreign direct investment (FDI) remained strong during April–January 2024-25, reflecting India’s strong macroeconomic fundamentals. Net FDI, however, moderated due to higher repatriations and outward FDI,” she noted.
Holding that the Indian rupee has remained one of the least volatile currencies among major economies, Sitharaman said India’s external sector remains resilient.
She warned that the global economy continues to face heightened economic uncertainty and downside risks. “Significant policy shifts in major economies imply stronger headwinds for global growth,” the minister said.
While the inflation outlook for emerging market and developing economies (EMDEs) remains benign, Sitharaman said central banks should remain vigilant to inflationary pressures, which may rise due to the potential for higher trade costs to increase price and wage pressures.
“The intensification of protectionist measures and trade policy uncertainty may also potentially act as a drag on global investment and cross-border financial flows. Therefore, policy actions are needed at the global, as well as national levels to foster a more favourable external environment and enhance macroeconomic stability by reducing structural bottlenecks, improving institutional quality and implementing sound policy frameworks,” she said, adding: “These improvements will help EMDEs harness transformative forces and absorb global spillovers in a least disruptive manner.”
The finance minister stressed that EMDEs must prepare for risks of further tightening of global financial conditions and high volatility in currency markets. “They need to use available policy tools diligently to preserve macro-financial stability. Fiscal space needs to be created to deal with high and rising public debt levels to prevent the feedback loop between debt sustainability concerns and financial stability,” she added.
